Financial Services and Markets Bill [HL]

Baroness Lawlor Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Baroness Lawlor (Con)]

My Lords, it is a pleasure to follow the noble Lord, Lord Sikka; I always learn from his speeches. The Bill is laudable in its aim to promote growth by cutting regulatory barriers, compliance, duplication and fragmentation, and, in doing so, to reduce the burdens and costs for businesses and support innovation. It aims to achieve these objectives by giving the FCA new powers, as we have heard today. I thank the Minister for his lucid explanation of the powers of the Payment Systems Regulator, which regulates credit card transfers, faster credit and BACS transfers, and which is to be abolished. Other new powers include the Financial Ombudsman Service’s regulatory powers for alternative dispute resolution under FSMA 2000, and the anti-money laundering and counterterrorism duties of the existing 22 professional bodies. The FCA will also have, as we have heard, duties transferred from legislation such as the Consumer Credit Act.

But the transfer of so many powers and functions to the FCA will not be a magic solution, nor indeed a solution at all, unless there is reform to how this regulator operates and how greater accountability can be achieved. The Bill will therefore need some amendments if the FCA is to promote growth and cut regulatory barriers effectively, with better arrangements than those it replaces, since there are many queries about how the FCA operates.

In 2025, the Lords Financial Services Regulation Committee, in its very good report—which has already been mentioned—found that the failings of the two main regulators, the PRA and the FCA, include:

“The deeply entrenched culture of risk aversion … getting in the way of doing what these firms do best … competing, innovating and growing”.


One question here is whether, given such doubts, the changes proposed in the Bill to how the FCA itself works, particularly in Clauses 16 to 22, will lead to the regulator working to promote growth and competition, and whether there is, at the same time, sufficient accountability, predictability and transparency, as well as the checks and balances we need.

I comment on this in respect to the principles, which have had a good airing today so far—I hope that noble Lords will forgive me. The noble Lord, Lord Burns, for instance, referred to the background to the 2000 Act and how and why this solution was arrived at. The principles seem sensible enough. Firms are obliged, among other things, to conduct their business with integrity, skill, care and diligence, to take reasonable care with management and control, and to and pay due regard to the interests of its customers and treat them fairly—all of which seem sensible. But how they have been interpreted has often been a matter of subjective judgment. Smaller businesses especially have found aspects of the regulation baffling, lacking transparency, and unpredictable. They therefore play safe and avoid risk, often at the expense of growth. My noble friend Lady Noakes and the noble Baroness, Lady Bowles, referred to one of the proposals, which is to take out having regard to such principles. The noble Baroness, Lady Bowles, added that the problem is that they need to be applied properly.

I will say a few words about the application. The financial services lawyer Barnabas Reynolds has explained that the principles used, as applied by the regulators, can lead to considerable uncertainty, given the “subjective”, often idiosyncratic, judgments of the regulators. They are applied to

“pin blame on firms and senior personnel regardless of whether relevant rules or guidance existed when the event occurred”,

since the principles are not

“used in the manner of normal common law … to inform the interpretation of specific rules.”

As a result,

“the industry is unable to determine in advance whether many specific actions are permitted or not”.

This is a problem of application.

Indeed, the evidence given to the Select Committee bore this out. Take Principle 12, on the consumer duty, the intended outcome of which was for

“consumers to have confidence in retail financial services markets, with healthy competition based on high standards and … good customer outcomes”.

Witnesses explained to the committee that the implementation had generated uncertainty, saying that

“the FCA has provided insufficient clarity around how it expected firms to comply with the Duty, and that it had created duplication and complexity within the framework”.

They said that

“implementing the Consumer Duty has been difficult due to … ‘the ambiguity of the rules’ and the lack of clarity provided by the FCA”.

This is in respect of the application of these rules, about which the noble Baroness, Lady Bowles, has spoken as well.

The Bill’s accountability mechanisms should be strengthened, which could help deal with this problem of application. As we have heard, noble Lords have objected to removing them altogether and have spoken about the danger of nobody knowing what on earth they will be judged by. I will consider how we can insert clear obligations under law which can be judged in the courts—obligations for predictability, fairness, objectivity and transparency under law.

These could be further promoted by obliging regulators by statute to supervise and enforce predictably, in accordance with their rules, ensuring that their decisions are consistent between firms which operate businesses of the same size and scope. They should be obliged to publish examples of predictable rulings for firms and how they were reached. In this way, there would be greater transparency, predictability would be enforced and firms, as a result, would be encouraged not to be risk averse and would be certain in the knowledge that what the rules say they mean can be established and, if not predictably enforced, can be challenged in court under law.